Optimism despite cost inflation

UK construction companies signalled a further increase in output volumes during August. However, the pace of growth eased notably from the previous survey period, according to the latest data from IHS Markit/CIPS.

There were softer expansions across housebuilding, commercial work and civil engineering activity as well as in new order growth. Moreover, companies widely noted sustained, and severe, supply chain disruption in August, which contributed to an accelerated rise in input prices, and one that was the second sharpest in the history of the survey.

The headline seasonally adjusted IHS Markit/CIPS UK Construction PMI Total Activity Index posted 55.2 in August, down from 58.7 in July, indicating activity has expanded in each of the last seven months. That said, the rate of increase eased to the softest since February as restricted supply of materials and transport began to weigh on overall construction activity.

Commercial work (index at 56.0) was the best performing broad category of construction output in August, though the rate of expansion eased to the slowest for six months. This was followed closely by housebuilding (55.0), while civil engineering remained the slowest growing subsector (54.8) for the fourth month in a row.

Total new work increased for the 15th consecutive month in August. While the latest improvement in order books was marked overall, the rate of growth softened to the weakest since March. Businesses noted a continued resumption of projects that had been delayed due to Brexit and the pandemic, though client confidence was dampened by volatility in raw material supplies and increased cost burdens.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “Material and staff costs went through the roof as job hiring accelerated to fill the gaps in capacity left behind by employee moves, overseas worker availability and brought on by skills shortages. Paying higher wages for experienced staff along with low stocks of materials at suppliers meant inflationary pressure rose at a rate almost on a par with June’s survey record; 84% of supply chain managers reported paying more for their purchases.

“These obstacles to construction’s progress are set to continue and are now affecting last year’s strongest performer – house building – which will exacerbate the problem of housing supply. However, optimism improved on last month as more than half of building firms believe that output will continue to rise in the year ahead.”

Brian Berry, chief executive of the Federation of Master Builders, said: “Builders throughout the UK, particularly smaller firms, are struggling to recover from the pandemic as a result of the continued materials crisis. For some time now, demand for building materials has been outstripping supply, with this month’s data representing the second-fastest rate for input cost inflation since recording began.

“The FMB’s latest membership survey revealed the prevalence of this crisis within the sector, with 98% of FMB members experiencing price increases for building materials. It’s vital that transparent allocation and pricing policies are implemented to help enable SMEs to have continued and stable access to materials. The government should also re-evaluate their position with regard to issuing temporary visas for EU HGV drivers, to better enable the delivery of materials.”